An Opportunity That Can’t Be Missed

At a time when many small businesses report that their No. 1 problem is poor sales, communities are still ravaged by high unemployment, and state and local revenues have fallen to historically low levels, it seems unthinkable that the Governor would pass up an opportunity to sign a bill into law that would simultaneously provide a boost to local merchants and jobs while increasing tax collections that support the state’s public structures, from schools to public safety to health care. A bill making its way to Governor Brown’s desk – ABX1 28 – would do all of that. We urge the Governor to support this legislation.

ABX1 28 takes a multi-pronged approach to remedying a decades-old problem: The failure of certain online retailers to collect the sales tax legally owed by California’s consumers when they make purchases from out-of-state retailers. This is a problem with a huge price tag for the state, causing California’s sales tax collections come up around $1 billion short each year. As online sales soar, the “sales tax gap” will widen further, taking a bigger bite out of the state’s revenues. By implementing three strategies to boost online retailers’ sales tax collections, which we described in detail in a recent Brief, ABX1 28 would make a significant dent in the sales tax gap and help close our gaping budget gap. In fact, in 2011-12 alone, ABX1 28 would boost revenues by an estimated $195 million – an amount that would allow more than 30,000 low-income children to maintain access to affordable child care and preschool, access they would otherwise lose under the budget agreement approved by the Legislature.

ABX1 28’s comprehensive approach also would level the playing field for hometown businesses. Certain online merchants have structured their operations explicitly around tax avoidance – locating in low or no sales tax states – while refusing to cooperate with state tax officials trying to collect the sales tax that’s due. As a result, these sellers underprice local “brick-and-mortar” stores that do collect the tax, which draws customers away from traditional stores to the detriment of local communities. Last year alone, California businesses lost an estimated $4.1 billion in sales to online retailers, costing jobs and pulling much-needed dollars out of local economies.

It’s time for California to join states from New York to Illinois in taking aggressive action against online companies whose business model shortchanges states and hurts homegrown businesses. As the nation’s largest market state, California ought to assume its rightful role as leader and pave the way to a national solution to this nationwide problem.

—Alissa Anderson